Analysing the impact of the Kigali Special Economic Zone on firm behaviour
- Analysis of the impact of Special Economic Zones (SEZs) on economic performance remains limited.
- The Rwandan government requested an assessment of the Kigali SEZ’s effectiveness on firm behaviour.
- The study shows SEZs should be viewed as growth catalysts rather than small, separate pockets of economic activity.
- The study’s recommendations were integrated in Rwanda's updated SEZ policy in 2017.
Special Economic Zones (SEZs) are an important and increasingly popular policy tool. However, there has been limited rigorous empirical analysis on what impacts SEZs actually have on economic performance, especially in a Sub-Saharan African context. Understanding better the conditions under which SEZs provide economic benefits is particularly important in Rwanda, as considerable land and resources have been devoted to the Kigali SEZ, which now also plays a key strategic role in Rwanda’s Industrialisation Policy.
In the context of the revision of its SEZ policy, Rwanda’s Ministry of Industry and Trade (MINEACOM) asked IGC Rwanda for an analysis of how the various costs of operating SEZs weigh up to their potential benefits. The study focused on one of the SEZ’s six strategic policy areas: zone benefits and incentives. It made use of firm-level tax data to provide robust analysis of the impact of the Kigali SEZ on firm-level behaviour.
The study found that in its first few years, the Kigali SEZ has made impressive inroads in strengthening Rwanda’s industrial sector and in diversifying exports. To maintain momentum, Rwanda’s SEZs should not be used as small, separate pockets of economic activity (enclaves). Instead, they should build on Rwanda’s current strengths and be used as a key drivers (catalysts) to deliver on Rwanda’s broader vision and overall economic strategy. Specific recommendations were made to improve the current effectiveness of the Kigali SEZ, and the future direction of SEZs in Rwanda.